Limits of market-based strategies for slowing global warming: The case of tradeable permits

Abstract

Concern over an enhanced greenhouse effect has yielded interest in an international effort to control rising concentrations of greenhouse gases. Among the possible mechanisms for doing this is a comprehensive marked-based approach. This approach would establish a global system of tradeable permits for the sources and sinks of the major greenhouse gases: carbon dioxide (CO2) , nitrous oxide (N20), methane (CH4) , and tropospheric ozone (03). (Chlorofluorocarbons (CFCs) are not closely considered here because they are already controlled under the Montreal Protocol on Substances that Deplete the Ozone Layer.)The main finding is that -with the possible exception of CO 2 -not enough is currently known about these gases to accurately monitor such a system of tradeable permits. The main argument is made on the basis that the anthropogenic sources and sinks of non-CO2 gases are quite uncertain, making nation-by-nation monitoring very difficult. Also, monitoring many of the sources and sinks for these non-CO 2 gases will be very complicated -the administrative costs of the endeavor may be much larger than benefits of including these gases in a global system of tradeable permits. One alternative to the proposed comprehensive marked-based approach is a more limited system that includes only CO2. This finding has broader application to all greenhouse control mechanisms, not just tradeable permits.In addition to these natural science-related issues, the paper also briefly raises several other issues such as fear that markets will allow firms to 'buy up the environment.'

Compliance and Emissions Trading under the Kyoto Protocol: Rules for Uncertain Inventories

“…Assessments of uncertainty have been carried out and compared for several countries; see, for example, Charles, Jones, Salway, Eggleston and Milne (1998); Lim et al (1999); Gawin (2002); Jonas and Nilsson (2001); Monni, Syri and Savolainen (2004b); Nilsson et al (2000); Rypdal and Winiwarter (2001); Rypdal and Zhang (2000); van Amstel, Oliver and Ruyssenaars (2000); Salway et al (2002) see also a compendium in Gugele, Huttunen and Ritter (2005). There have been a number of rather vague references to excluding the most uncertain activities from emissions trading (Monni et al, 2004a;Victor, 1991). In Godal (2000) and Godal, Ermolev, Klaassen and Obersteiner (2003) undershooting as the basis for proving compliance is proposed.…”

Sustainable greenhouse policies: the role of non-CO2 gases

“…Morgenstern (1991), Victor (1991), Swart (1992), Mohr et al (1992) and Subak (1994) discuss some practical issues associated with a comprehensive approach like, e.g., the choice of policy instruments and monitoring requirements; Eckhaus (1992), Hoel/Isaksen (1993) and Schmalensee (1993) analyse how the damage caused by different greenhouse gases depends on economic variables like, e.g., the growth rate; and Reilly/Richards (1993) construct a damage index for different gases that includes climatic as well as non-climatic effects. Finally, Nordhaus (1993) uses a dynamic integrated climate-economy ('DICE') model in order to calculate an optimal transition path for controlling the emissions of CO 2 , methane (CH 4 ), nitrous oxide (N 2 O) and chlorofluorocarbons.…”

The GTP of Methane: Modeling Analysis of Temperature Impacts of Methane and Carbon Dioxide Reductions

“…In addition to the lifetime issue, there is also the issue that for many sources, methane emissions are more difficult to quantify than emissions of fossil fuel CO 2 [4]. While many pollutants are well suited to economic instruments such as cap and trade or tax mechanisms, there are cases when command and control mechanisms can be superior [45], especially in the case of poorly observed emissions [20,27]. Historical precedent offers some cause for optimism in the case of methane control by non-market mechanismsthe United States and the European Union both instituted domestic policies that successfully reduced methane emissions during the 1990s without the need for any binding international commitments, mainly through reductions in emissions of coal mine methane and landfill methane [43].…”